Fiscus cannot be a bottomless well for Eskom bailouts
Over the next few days the National Energy Regulator of SA (Nersa) is due to release a consultation paper on energy minister Gwede Mantashe’s two section 34 ministerial determinations.
The first of these is for the procurement of emergency power that can be “grid connected in the shortest time at the least possible cost”. The second is to initiate the procurement of longer-term electricity supply in line with the Integrated Resources Plan (IRP 2019). Many South Africans will be breathing a sigh of relief, optimistic that a solution to the scourge of load-shedding is in sight.
Given that 2019 was the worst year in SA’s history for load-shedding, it was no surprise when the Treasury announced that our economy had entered a recession. With this dismal economic performance, it was also no surprise that the preceding week’s budget speech was going to be contentious.
Key components of the state’s responsibility towards service delivery have been seriously compromised due to budget cuts. It is therefore galling that despite having placed us in this sticky situation, Eskom seems to continue enjoying limitless finance for bailouts on its existing debt — all while planning to raise new debt it cannot hope to service.
After receiving R133bn in bailouts over the last 12 years — 82% of total state bailouts for the period — Eskom will enjoy an increase on its initial bailout budget from R69bn to R112bn over the next three years. Eskom’s 2019 integrated annual report reflects that the boardapproved borrowing plan for the five years until 2023 is to secure further debt totalling R207.4bn. This is on top of the R450bn debt it cannot presently service.
Clearly finance minister Tito Mboweni has forgotten his 2019 budget speech, in which he said: “Pouring money directly into Eskom is like pouring water into a sieve; I want to make it clear: the national government is not taking on Eskom’s debt. Eskom took on the debt — it must ultimately repay it.”
Our dependency on Eskom has led us to a situation in which we are throwing good money after bad, and we feel powerless to do otherwise. As long as investors are prepared to buy state-guaranteed Eskom bonds, a seemingly inexhaustible line of credit remains open to enable its mismanagement.
If we as the public must continue to bail out Eskom, then surely this must be contingent on Eskom choosing to incur the least cost to taxpayers. Why will only the emergency power determination be conducted at the least cost, when the second determination on the IRP is projected to be R100bn more expensive than the least-cost scenario?
Even in 2016, when new coal independent power producers (IPPs) Thabametsi and Khanyisa were announced, their tariffs were already set at R1.01 per kWh, while wind and solar IPPs were winning bids at 62c per kWh. Coal has been conclusively proven not to be cheaper than renewables.
Not only did this IPP process show that coal was substantially more expensive than renewables, it also showed that coal is not bankable. In 2019 Nedbank, First Rand Bank and Standard Bank withdrew from funding new coal IPPs. The World Bank and the African Development Bank both no longer fund coal. Even the Brics New Development Bank, with almost 50 projects under its belt, has steered clear of coal.
We have been told by Mantashe that coal remains in the IRP because it supports a “just transition [to renewables] at a pace and scale that we can afford”, but how many more Eskom bailouts can SA afford? It is time that we stopped treating the fiscus as an inexhaustible supply of bailouts for coal power that Eskom clearly cannot afford, and rather expedite the just transition to renewable energy at a pace and scale we can finance.